Answer:
Explanation:
In order to calculate he present value or worth of this bond we woulñd have to make the following calculations:
Face value (FV) $ 1,000.00
Coupon rate 8.50%
Number of compounding periods per year 2
Interest per period (PMT) $ 42.50
Number of years to maturity 8
Number of compounding periods till maturity (NPER) 16
Market rate of return/Required rate of return per period (RATE) 5.00%
Therefore, Bond price= PV(RATE,NPER,PMT,FV)*-1
Bond present worth=$918.72
The present value or worth of this bond is $918.72
The present value of this bond is $572.
Data and Calculations:
N (# of periods) = 16 (8 years x 2) or semi-annually
I/Y (Interest per year) = 8.5%
PMT (Periodic Payment) = 50
Face Value of bond = $1,000
Acceptable rate of return = 10%
Semi-annual interest = $50 ($1,000 x 10% x 1/2)
Results:
The present value of the bond = $572.02
The sum of periodic payments = $800.00 ($50 x 16)
Total Interest = $227.98
Thus, the present value of the bond is $572.
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